Affordable housing firm plans Rs500 crore IPO

Mumbai: Value and Budget Housing Corp. Pvt. Ltd (VBHC), a company co-founded by Jerry Rao, has started consultations with investment bankers for a possible initial public offering (IPO) to raise about `500 crore, according to two bankers who have met the company.

“They are looking to raise capital to provide part exit to their existing investors; it is not clear if any of them will make a complete exit,” said one of the two people cited above, requesting anonymity. The affordable housing company is backed by global private equity fund Carlyle Group Lp and International Finance Corp., part of the World Bank Group, among others.

VBHC, the company that Rao founded with his former colleague at Citibank P.S. Jayakumar, aims to address the growing demand for affordable housing in India, catering to middle-income earners. In August 2010, the company had launched its maiden project Vaibhava near the Electronic City in Bengaluru. Its homes cost`16.74-30.93 lakh, depending on location. It plans to deliver 18,000 homes in the next three years, the company said last month.

Housing shortage in the beginning of the 12th Five-year Plan (2012) was estimated to be 18.78 million, according to a report by the ministry of housing and urban poverty alleviation.

“Affordable housing is a very good segment to be in, as the government is focused towards this segment. Over the years, many companies have come and moved away towards high end or premium category, but this is the only company which has remained true to the business practice and has delivered projects,” said Anuj Puri, country head and chairman at Jones Lang LaSalle India, a property consultant.

In an emailed response, Jerry Rao, who also founded software services company Mphasis Corp. and later sold it to EDS Inc., declined to comment. An IFC spokesperson said “IFC is a long-term investor. Affordable, climate-friendly housing is an important area of focus for us in India given the large housing deficit. IFC has invested about $14 million in VBHC to support the development of quality affordable housing in India”.

According to a 5 May Mint report, VBHC raised `65 crore through a rights issue, where existing investors Carlyle and IFC bought shares along with a few other wealthy investors. Rao too had invested during this round, but did not disclose the size of the investment. In August 2011, the company had raised $26 million from Carlyle.

The company currently has projects in the outskirts of Bengaluru, Chennai, National Capital Region (NCR) and Mumbai.

“There is not too much activity in this (affordable housing) segment because value of land is an issue,” said Anshul Jain, chief executive officer at DTZ India, a global property consulting firm. “Unless there is government participation in terms of subsidies for cheaper land or construction financing, we won’t see it taking off in a large way. During budget, we are expecting more friendly policies towards low and mid-income housing, which will kickstart a lot of activity in this segment,” Jain added.

Last month, VBHC announced its entry into the senior living category with a residential project in Bengaluru, in association with Vedaanta Senior Living.

Other companies who are tapping the affordable housing segment include Shapoorji Pallonji Real Estate, which last month announced its plans to launch two projects.

The company plans to build homes priced at `20 lakh and above. It expects to build such homes across 18-20 million sq. ft in six-seven years through a separate entity, which would build houses in the outskirts of top cities in the country.

A number of corporate entities have ventured into the affordable housing space in recent years to tap the sheer demand for such homes. In August 2014, real estate firm Mahindra Lifespace Developers Ltd launched its first ‘Happinest’ project in Avadi, Chennai. Later, in October, it launched its second such project at Boisar, near Mumbai.

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